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Hey, Money Scoop! I discuss cashing out the $48,000 I invested in my company’s 401(k) to pay off my $30,000 credit card debt. Credit card payments are brutal, and I feel like I’ll never pay them back by making minimum payments, just to see half of that payment disappear because of interest. Is this a good or a bad idea?—401(k) to pay
Why? Because as soon as you take that money out of your retirement account, you’ll be hit with two big bills: a tax bill and a 10% early withdrawal penalty. The IRS may automatically withdraw this money from your 401(k) account, or you may need to set it aside yourself; Either way, you should be prepared to lose a good chunk of your 401(k) from the start.
If you wind up your 401(k) before you’re fully invested in your company’s retirement plan, you could lose even more money, not to mention the money you’ll lose selling your 401(k) investments. during a bear market. .
It’s a lose-lose-lose-lose scenario.
Want a win-win scenario? Keep your money in your 401(k) and continue to make those tax-efficient retirement contributions, especially if your company offers to match the funds you contribute. If you can’t afford to make 401(k) contributions right now, you can still benefit from the compound interest you’ll earn on the account, which is another reason to 💅leave alone and let him do his thing 💅.
When it comes to your credit card debt, I would start by looking for a balance transfer credit card that offers at least 12 months of 0% intro APR. This way, you can pay off at least some of your outstanding balances without having to pay interest.
Depending on your credit score, you may also want to consider a low interest personal loan. Use the loan to pay off your credit card debt, then start paying off the loan at its lowest interest rate.
I will also give the usual financial advice to rethink your budget-and yes, I know, that sounds like terrible advice to give during a year when everything costs 8.3% more than usual. Keep in mind that a balanced budget has two components: spend less and win more. If you can’t spend less right now, try focusing your efforts on win more column.
It would be a win-win-win, if you could make it happen! –Nicole Dieker, Money Scoop guest columnist